porto group - initiation of coverage - august 2016

PRIME INVESTMENT RESEARCH AUTOMOTIVE |EGYPT

GB AUTO – INITIATION OF COVERAGE JANUARY, 14TH

2016

PRIME INVESTMENT RESEARCH

HOUSING|EGYPT PORTO GROUP – INITIATION OF COVERAGE

AUGUST, 4TH 2016

WE INITIATE COVERAGE FOR … PORT … ASSIGNING A “STRONG BUY” RATING

PORTO GROUP, … IS CURRENTLY TAKING ITS PRIMARY AND SECONDARY

HOME DEVELOPMENTS TO EGYPT`S YET UNTAPPED

LOCATIONS BY THE COUNTRY`S PREMIUM DEVELOPERS. … IS GROWING ITS REGIONAL FOOTPRINT, WHICH

ALLOWS FOR MORE EXPANSION AND FURTHER CO-DEVELOPMENT AGREEMENTS. … THE GROUP CURRENTLY APPLIES ONE OF THE BEST

STRATEGIC BUSINESS MODELS, SAVING LAND COSTS AND

SPEEDING UP DEVELOPMENTS.

WE INITIATE COVERAGE FOR PORTO GROUP AT A FAIR VALUE OF

EGP 0.47/SHARE IMPLYING 74.5% UPSIDE POTENTIAL.

HENCE, WE ASSIGN PORT A “STRONG BUY” RATING.

2

PRIME INVESTMENT RESEARCH PORTO GROUP - INITIATION OF COVERAGE

AUGUST, 2016

We initiate coverage on Porto with a fair value of EGP 0.47/share, we valued Porto Group using SoTP valuation, utilizing an average Cost of Equity of 21.3%; resulting in74.5% upside over current trading level. Porto Group is legally a newly formed entity; the company currently carries operations for 12 projects; 9 of which are domestically deployed, while 3 others are located regionally in Jordan, Syria and Morocco. Back in the days, Porto was just an entertainment concept aiming to gather up families in Porto destinations that were fully equipped with all possible amenities, shopping malls, and golf, fountains or lagoons views. However, the concept got bigger and became widely recognized and mature to the extent the company`s management decided to spin it off in an attempt to make its value more apparent. A spin-off resulted in a solely focused real estate developer “Porto Group”, with a business model skewed towards co-development agreements to skillfully maneuver the inflationary environment and competition over scarce premium spots in satellite cities and secondary home premium spots “North Coast”. Such Co-development agreements help speeding up projects set up and construction, benefiting from the absence of land costs. The group`s unified rainbow theme design implemented across all the company`s projects` portfolio helps saving up bulk design costs incurred by peers. Porto also subcontracts the building and construction process to multiple sub-contractors of medium size which also helps speeding up projects` implementation. The group also indicates that development takes place across multiple projects simultaneously according to the managements` analysis of cost-benefit outcome to match the selling and marketing activities. We believe the Real Estate sector is currently suffering from an implicit stress not yet severe enough to shape a trauma but definitely sets a probable downside risk that might be on its way to grow until explosion. There is currently an estimated total of 3mn real demanded housing units surpassing the highly priced offering available, mostly from the middle-to-low income brackets. However, yet from all income classes we see the population putting in more efforts to satisfy their residential needs before its way too expensive to do so, whether such residential need is for immediate use and satisfaction or as an inventory for promising use. Such beliefs are driving prices even higher, which mandates us to warn about a red flag we see; payment defaults might be on its way up already; but still covered by new purchases, which led developers to extend their payment schemes offered up to 10 years in some cases. In addition to that the recent devaluation rounds have led too much to preserve money in real estate, a matter that might even grow more in times the greenback become too scarce to find. Such risk would definitely impact investors’ resale values due to the average citizen being under severe attack from inflation. In brief, dynamics` correction might be fierce, in case pricing upward jumps continues. However, we see Porto Group perfectly benefiting from the current real estate dynamics, being a middle income housing provider with eyes on the high end, through its gated premium quality recent developments in West and East Cairo. The group is also on its way to build a portfolio of recurring revenue streams properties which we value most on a NAV basis as the developments will add heavily to the company`s health while we are not yet fully sure of such developments treatment whether they will be sold to third parties or become operated by Amer Group. Porto Group enjoys an unlevered status, with minimal over draft amounts apparently raised and closed before quarters` ends, to cover up any probable short fall in cash balances and/or advances, due to the accelerated execution that take place by the company. Such aspect remains a key to valuation upgrade, as it would alter the massive cost of capital downward, once Porto decides on shifting its capital structure.

PORTO GROUP … ONE OF EGYPT`S TOP RE PLAYERS, DIVERSIFYING ITS

PORTFOLIO AWAY FROM CAIRO`S EAST AND WEST SIDES …

“STRONG BUY” MARKET PRICE EGP 0.72 FAIR VALUE EGP 0.72 POTENTIAL 74.5%

INVESTMENT GRADE “GROWTH”

Stock Data Outstanding Shares [in mn] 4,559.5 Mkt. Cap [in mn] 1,231.1 Bloomberg – Reuters PORT EY / PORT.CA 52-WEEKS LOW/HIGH EGP 0.23– EGP 0.47 AVERAGE DAILY TURNOVER EGP 6.71MN

Ownership Sol Global Holding Limited 35.0% Amer Wakf 15.0% Lantess international Limited 10.0% Egyptian Wakf Limited 2.0% Mohamed El-amin 7.0% Fineby Estates 3.0% Treasury 3.0% Free Floating 25.0%

Source: Bloomberg

0

0.05

0.1

0.15

0.2

0.25

0.3

0.35

0.4

0.45

0.5

Port.CA EGX 30 (rebased)

Report Content Valuation & Risks 3-4 Financial Statements 5 The Spin Off 6 Operational Overview 7 Projects` Analysis 9 Disclaimer 19

3


AUGUST, 2016

SOURCE: PRIME

Porto Group has a rich pipeline of launches expected. The company said it plans launching Porto Heliopolis and Porto Saeed, two major catalysts to the company`s stock before year end; following Porto Pyramids launch in 1Q2016. However, we currently account for Porto Heliopolis launch to take place in 2016, and believe that Porto Saeed launch will not take place before 2017. We considered Porto Heliopolis in our valuation being closer to materialize in our opinion, while Porto Saeed would be added once the company announces further details concerning the master plan, pricing and final launch date as the project is one of the few huge projects the company owns, in addition to that some aspects of the project are still under licensing.

Valuation

From the rich portfolio we see owned by Porto group, we found Porto October to be the largest contributor to the company`s valuation adding 27.7% of total value. We valued the residential and commercial portion of each project using a Discounted Cash Flows methodology, while valuing the land areas dedicated to schools, hospitals, garages, clubs and/or hotels on Net Asset Value basis post contributing the third party share. Although such NAVs are at the more or less relative and/or subjective, we maintained our conservatism to the extent in setting values, in order not to be over optimistic while not neglecting a massive portion of land area unaccounted for. We assumed 2017/2018 to be the range within which the company to decide on such properties destination, whether they will be retained and operated by Amer Group or sold to third parties.

We valued Porto Group using SoTP; the largest contributor to our valuation was the residential and commercial portion of all projects, summing EGP 0.329/share equivalent to approximately 70.1% of our value, while NAV added EGP 0.07/share equivalent to 13.8%. Hence, SoTP yielded a total of EFP 1,801.8mn equivalent to EGP 0.395/share.

Although Porto Group still carries a debt free balance sheet, the adverse impact of discounting cash flow as the cost of equity was partially smoothed through adding a net cash balance to the stock`s value; adding approximately EGP 0.08/share.

We did not add Porto Saeed to the valued projects, as we chose to wait for the announcement of a specific launch date, or a closer guidance to the anticipated pricing levels and planned construction and infrastructure costs. However, we valued the project on a DCF basis fully utilizing our assumptions, which would definitely add at least 6-7% to the company`s valuation. Porto Saeed will become the stock`s upcoming catalyst along with Heliopolis launch.

Porto Group Portfolio

Value - in EGP mn Value/Share SoTP Contribution to Total Value

Porto Cairo DCF 201.27 0.044

0.044 9.4% NAV 0.00 0.000

Porto October DCF 505.66 0.111

0.130 27.7% NAV 89.21 0.020

Porto Lagoons DCF 46.14 0.010 0.010 2.1%

Porto Sokhna Island DCF 90.71 0.020

0.023 5.0% NAV 16.06 0.004

Porto Matrouh DCF 20.87 0.005 0.005 1.0%

Porto New Cairo DCF 69.75 0.015

0.028 5.9% NAV 57.44 0.013

Porto Pyramids DCF 128.06 0.028

0.030 6.3% NAV 6.87 0.002

Porto Heliopolis DCF 172.90 0.038

0.046 9.7% NAV 36.28 0.008

Porto Dead Sea DCF 213.72 0.047

0.067 14.2% NAV 91.31 0.020

BUA Bought from Amer DCF 55.5 0.012 0.012 2.6% Aggregate DCF Valuation 1,504.58 0.329

70.1%

Aggregate NAV Valuation 297.17 0.07

13.8%

SoTP Valuation

1,801.75 0.395

83.9%

Add: Cash - 1Q2016

346.00 0.076

16.1%

Total Value

2,154.16 0.47

4


AUGUST, 2016

Upside Risks

1) Faster than accounted for selling duration, as we extended most projects` sales duration more than

planned; due to our beliefs is currently suffering from a stressed status.

2) More co-development agreements to follow after the current portfolio`s successful execution.

3) Inflation easing, macro status improvement reflected in disposable income and purchasing power enhancement would definitely be reflected positively on Porto Group being the ultimate gated community targeted by most middle-income youth.

4) Adding Porto Saeed NPV to the stock`s total value once the master plan, pricing and final launch date are announced, would add at least 6-7% per our preliminary figures.

5) Any progress from the morocco government concerning the legal procedures and land allocation for Porto Agadir would act as strong upside to the stock as the project is not accounted for in our valuation.

6) Considering debt financing would add up to the company`s valuation, in case new sales fall short.

Downside Risks

1) In our view, any further EGP devaluation, would adversely impact real estate sales` proceeds from now on, as the pricing level is seen steep upward sloping with un matching income levels able to support the current inflationary environment.

2) Porto Group`s plans for targeting more high-end income related citizens on the cost of losing the middle income client base, might be fatal, due to the high end concentrated market and the middle income affordability obstacles.

3) A Stagnant status to hit the real estate market, on the back of hyper increase in selling prices.

4) Absence of rapid solutions for Egypt`s current economic conditions would adversely affect demand for the real estate sector.

5) Further building materials costs increase beyond our estimations, would negatively affect Porto Group`s margins.

5


AUGUST, 2016

SOURCE: PORTO, PRIME

Financial Statements … Historical & Forecast Income Statement Brief Hist. Forecast

In EGP Mn 2015 2016F 2017F 2018F

Revenues 996.4 1,532.7 2,846.0 2,348.9 Change NA 0.5 0.9 -0.2

COGS 719.9 651.9 1,339.8 1,117.5 Change NA -0.1 1.1 -0.2

Third Party Share Matched * NA 351.3 666.9 491.4 Gross Profit 276.5 529.5 839.3 739.9

SG&A 255.9 240.6 232.9 268.9

EBITDA 16.4 258.3 549.4 424.1 Net Income After MI 38.0 188.9 439.7 354.0

Balance Sheet Brief Hist. Forecast

In EGP Mn 2015 2016F 2017F 2018F

Cash 586.25 584.51 265.16 903.29 Net Receivables 438.90 624.49 739.81 717.11 Work in Process 1,933.92 1,893.24 1,792.36 2,216.53

Other Current Assets 474.03 735.92 911.01 940.00

Total Current Assets 3,433.09 3,838.16 3,708.34 4,776.93

Net PPE 52.75 50.89 48.94 41.51 Net Intangibles 1.33 1.34 1.35 1.37 Other LT-Assets 310.83 334.56 332.37 327.40

Total Long Term Assets 364.91 386.79 382.66 370.28

Total Assets 3,798.00 4,224.95 4,091.00 5,147.21

Liabilities

STD - incl CPLTD 0.00 0.00 0.00 0.00 Accounts Payable 91.32 89.31 183.53 153.09

Advances 2,884.98 3,251.03 2,674.74 3,580.74 Other Current Liabilities 264.41 254.37 356.02 338.49

Total Current Liabilities 3,240.70 3,594.71 3,214.29 4,072.31

LTD 0.00 0.00 0.00 0.00 Other Long Term liabilities 6.92 0.18 0.37 0.31

Total Long Term Liabilities 6.92 0.18 0.37 0.31

Total Liabilities 3,247.63 3,594.89 3,214.66 4,072.62

Equity

Paid-in-Capital 455.95 455.95 455.95 455.95 Reserves 16.34 35.23 79.20 114.59

RE 78.67 132.19 330.06 489.34 Minority interest 4.78 6.69 11.13 14.70

Total Equity 555.74 630.06 876.34 1,074.59

Margins & Ratios

2015 2016F 2017F 2018F

GPM 27.75% 34.55% 29.49% 31.50% Ebitda Margin 1.65% 16.85% 19.31% 18.06%

NPM 3.82% 12.32% 15.45% 15.07% EPS 0.01 0.04 0.10 0.08 P/E 32.38 6.52 2.80 3.48 DPS 0.02 0.02 0.04 0.03 ROA 1.00% 4.47% 10.75% 6.88% ROE 6.84% 29.98% 50.17% 32.94%

Debt/Equity NA NA NA NA Presented to match revenues recognition for illustration, contribution is instantly due from contracted sales.

6


AUGUST, 2016

The Spin-off Story

Back in November 2014, Egypt’s real estate firm Amer Group announced the extraordinary general meeting’s approval of splitting the company into two separate companies; Amer Holding (demerging company) and Porto Holding (demerged company).

The spin off rationale was about the Porto concept getting mature without a matching recognition as expected by the management, as the management believed that through splitting the 2 entities the value implied in Porto projects would become more transparent and clear. While Amer Group pre-split carried revenue streams of property management would then become priced and reflected in the stock`s performance. Hence, the spin off took place to show both companies real intrinsic value.

The two companies joined EGX database on 21 October, and commenced trading on 22 October 2015. The split took place based on the book value as per 9M2015 Financials, hence splitting assets and liabilities at the carrying value at the split date. Amer board decided the split to take place on a 2:1 ratio, cutting down Amer Group par value to EGP 0.2/share to create Porto Group`s EGP 0.1/share worth par value. The capital cut took Amer paid in capital to EGP 911.9mn down from EGP 1,367.9mn, and hence creating Porto Group`s current capital of EGP 455.9mn. Amer group commenced trading at EGP 0.58/share, while Porto group commenced at EGP 0.29/share.

Porto Group became Egypt`s middle income-targeting real estate developer carrying projects locally in primary and secondary residential markets, while taking its successful secondary home concept regionally; through flying to Jordan, Morocco and Syria. Amer Group turned into specializing in hospitality, restaurants, and commercial centers operations in addition to property management.

Porto Group in Focus

Porto Group took over the responsibility of real estate development post the split; the company currently has an impressive portfolio of launched and under-designing/licensing projects. Located in Egypt`s most exclusive locations beside some of the region`s attractive spots in Jordon, Morocco and Syria.

The current projects portfolio indicates a business model skewed towards co-development agreements, to maneuver Egypt`s skyrocketing land prices that threaten the sector`s health along with other aspects that ultimately lead to hammering the end users through unprecedented cost pressures to satisfy their residential needs. Hence, through such revenue sharing skewed business model, Porto is seen performing well through its targeted middle income with an affordable wide ranged offering that guarantees healthy margins.

The group operates through a number of subsidiaries almost fully owned, through which the company supervises

its operations domestically and regionally.

Domestic Subsidiaries Ownership % Country of Establishment Porto for Real Estate Development 96.0% Egypt

Delmar for Eeal Estate Development 99.7% Egypt Porto New Cairo 99.9% Egypt

Porto October 99.9% Egypt Porto Saeed 70.0% Egypt

Porto Pyramids 70.0% Egypt Al Alameen Education and Development 87.5% Egypt

Deals 99.9% Egypt Porto Mediterranean 100.0% BVI

Amer Syria 99.9% Syria

Porto International 95.3% UAE Porto Dead Sea 77.0% Jordan

Porto Agadir 90.0% Morocco

Porto Group Subsidiaries

SOURCE: PORTO GROUP

7


AUGUST, 2016

SOURCE: PORTO GROUP

Operational Overview

In contrary to the norm, the pre-split developer Amer Group primary operations started by the familiar restaurant chain known today. As the group grew back in the days, Real Estate operations became a new target. The group real estate operation started by targeting secondary home destinations, mainly through invading Egypt`s North coast. A move that grew a decent pool of promising clients, encouraging more diversification to target the primary residential market Cairo. Amer introduced its primary housing Porto Concept through multiple promising developments in East and West Cairo; that grew enough for a spin off. Porto is currently in charge of developing 12 projects distributed across Egypt and the MENA region, divided between primary residential destinations and secondary homes. All of the projects are developed on a revenue sharing basis with co-developers who mainly supply needed land plots with the exception of Porto Cairo, whose land is owned and paid by Porto, beside Porto Dead Sea and Agadir whose land payments will be incurred by Porto once certain conditions are met. All of the group`s projects whether targeting primary or secondary housing, enjoy the characteristics of the mixed-use developments; being rich with entertainment destinations, commercial properties including office buildings, hotel chains and healthcare developments in addition to shopping malls and other necessary and/or luxurious amenities. Porto Group is in charge of developing all of the projects` BUA, which is later recognized on the company`s statements as its own revenues. However, the group will not be involved with running the recurring income properties, as the property management duties were transferred to Amer Group co. at the spin off. The Porto concept became a destination for non-residents as well through its seasonal and annual concerts and other musical and entertainment festivals held across the group`s projects that helps in capturing the attention of potential buyers while successfully retaining the group`s current residents interest in future Porto developments as a destination for their children. Such heavy spending on providing the ultimate easy life helped Porto to stand out when it comes to competition over Egypt`s middle income class, as the group offering comes at reasonable prices. The Porto concept was to an extent capable of extending it's offering as well to enlarge its target pool through addressing the high end income class population through its east and west Cairo developments that competes well with other sophisticated developments found there.

Porto currently has access to 4,746.3k Sqm of land area, currently 2.9% is owned by the company representing Porto Cairo`s land while the remaining portion are obtained through Joint Ventures or Co-development Agreements the company joins. As per the company, Porto`s direct ownership will be growing after fulfilling Porto Dead Sea`s and Agadir`s liabilities and conditions. The remaining projects are held on co-development agreements with Amer Group, third parties and KUWAIDCO the largest contributor to Porto`s currently under-development land bank.

Project Launch

Year Project Status Location Type

Land Ownership/Partners

Third Party Share

Land Area - Sqm (`000)

Porto Cairo 2007 Developed East Cairo Primary/Mixed Porto Group - 137.3

Porto New Cairo 2013 In Progress East Cairo Primary/Mixed KUWAIDCO 25% 54.5

Porto October 2013 In Progress West Cairo Primary/Mixed KUWAIDCO 25% 1,381.0

Porto Pyramids 2016 Undeveloped West Cairo Primary/Mixed Third Party 19% 102.0

Porto Heliopolis 2016 Undeveloped Central Cairo Primary/Mixed Amer Group 40% 27.0

Porto Saeed 2016 Undeveloped Port Saeed Primary/Mixed Tower for Tourism &

Investment 15.50% 428.8

Porto Lagoons 2015 In Progress North Coast Secondary/Mixed Amer Group 20% 139.0

Porto Sokhna Islands

2015 In Progress Suez gulf

Coast Secondary Amer Group 20% 152.0

Porto Matrouh 2015 In Progress Matrouh Secondary/Mixed Amer Group 20% 133.0

Porto Tartous 2010 Development

Ceased Syria Secondary/Mixed Anterados 50% 186.0

Porto Dead Sea 2014 In Progress Jordan Secondary/Mixed Jordanian

Development Company - 805.8

Porto Agadir TBA Under

Licensing Morocco Secondary/Mixed

Morocco Engineering Co. Tourist

- 1,200.0

Total 4,746.3

8


AUGUST, 2016

SOURCE: PORTO GROUP

PORTO GROUP LAND OWNERSHIP … FROM C. 3% TO SHOOT UPWARD FOLLOWING AGADIR AND DEAD SEA LAND OWNERSHIP TRANSFER

SOURCE: PORTO GROUP, PRIME

Porto group currently has 8 launched and ongoing projects; Porto Cairo, New Cairo, October, Pyramids, Lagoons, Sokhna islands, Matrouh and Dead Sea; which have resulted in accumulated sales up to 1Q2016 of EGP 7.41bn. Out of which EGP 2.03bn have been recognized as of the end of 1Q2016. The group also has a strong and promising pipeline of project launches with Porto Heliopolis and Porto Saeed indicated to be launched before 2016 year end. Porto Tartous Syria was supposed to be launched in 2010, in which some of the commercial properties were actually established and operated, however the project was halted due to the ongoing security turbulences threatening operations. Porto Group also has interest in Morocco through its secondary home target project "Porto Agadir" which is still under licensing and design with no exact launch date yet announced.

Project Planned

Launch Year Projected

Launch Date Projected Start of

Delivery Sales up till

1Q2016 Recognized Revenues

Total BUA

Sold BUA to date

in EGP mn in `000 Sqm

Porto Cairo 2007 2007 2010/2015 1,185.33 1,146.43 84.7 74.0

Porto New Cairo 2013 2013 2016 1,895.83 - 207.7 109.2

Porto October 2013 2013 2015 3,611.02 882.21 692.0 269.6

Porto Pyramids 2016 2016 2018 26.83 - 175.5 2.5

Porto Heliopolis 2016 2016 2019 - - 175.8 -

Porto Saeed 2016 2017 2019 - - 328.5 -

Porto Lagoons 2015 2015 2017 175.10 - 138.0 21.3

Porto Sokhna Islands

2015 2015 2017 388.79 - 65.8 38.0

Porto Matrouh 2015 2015 2017 8.38 - 84.0 0.9

Porto Tartous 2010 2010 TBA - - - -

Porto Dead Sea 2014 2014 2017 117.51 - 250.0 5.4

Porto Agadir TBA TBA TBA - - 323.0 - Total

7,408.79 2,028.65 2,525.1 520.8

Strategic Business Model

We see Porto Group`s current business model as a high risk/high return model, as the model mainly depends on land contribution from third parties. The high risk is stemmed from the currently unavailable free land bank owned by Porto Group for other projects deployment beyond its 12 projects` pipeline. While the high reward is mainly due to the ready to move to land plots contributed through the strategic JVs the company enter, which helps in speeding up the infrastructure and construction phases, and lead to sales launch in record time. As most of the contributed projects land, was originally acquired way below the current inflated auctioned land prices; hence, securing rich margins. The group has not yet recognized revenues except from Porto Cairo and Porto October, although it has a respectful sum of sales to date, which promises a strong recognition over the upcoming years. The group has only sold c. 21% of its BUA which help minimizing the downside risk of free land bank unavailability beyond the announced projects.

9.5%

30.2%

15.1%

45.2%

Amer Group

KUWAIDCO

Other Developers/Authorities

Porto Group

9.5%

30.2%

15.1% 2.9%

42.3%

Amer Group

KUWAIDCO

Other Developers/Authorities

Porto Group

Dead Sea & Agadir

9


AUGUST, 2016

SOURCE: PRIME

SOURCE: PRIME

Projects` Analysis

According to our estimated we believe, Porto Group currently has EGP 17.2bn of sales to take place from 2016 to

2023, with revenues to be recognized over 2016-2025 totaling EGP 21.6bn, excluding Porto Saeed and Porto Agadir,

as both projects are still under design and not fully licensed yet. This should act as a strong upside to our numbers

once progress takes place in any of the 2 not included projects, as we roughly estimate Porto Saeed`s sales above EGP

2.7bn, which should strongly add to the company`s promising revenues. We estimated Porto group dues to co-

development partners for their land contribution at c. EGP 4.4bn from contracted sales. The group also still has EGP

9.97bn of development costs to be recognized.

Over the forecast horizon, we see Porto October the highest in contribution to sales and revenues recognition, given

the project size, followed by Porto Dead Sea the company`s first successful attempt in penetrating the MENA region

through its secondary home concept. The average payment duration followed is 4-years for all residential sales,

whether primary or secondary housing, while commercial payment schedules range from 2 to 3 years.

Usually, real Estate developers launch their commercial and retail allocated areas for sale earlier than residential

launch, to add value to their properties and execute sales at a fast tracked time line. Such methodology is not strictly

followed by Porto Group; that often launch Amer featured chains first.The group is known for its fast tracked

construction process and committed delivery dates. We believe units’ delivery usually takes 3 years for the first patch

of sales, followed by an average of 2 years. Mainly due to the group construction methodology of contraction trusted

medium sized sub-contractors.

Projected Sales – EGP mn 2016 2017 2018 2019 2020 2021 2022 2023 Aggregate Porto Cairo 77 - 45 - - - - - 122.1

Porto New Cairo 225 295 133 - - - - - 652.8 Porto October 934 649 1,134 1,242 488 419 345 305 5,517.0

Porto Pyramids 125 472 287 332 273 100 - - 1,589.2 Porto Heliopolis 131 502 601 705 225 0 - - 2,164.9 Porto Lagoons 123 337 254 218 169 79 - - 1,180.7

Porto Sokhna Islands 147 197 - - - - - - 344.6 Porto Matrouh 59 291 290 116 - - - - 756.4 Porto Dead Sea 203 838 1,707 1,101 660 316 - - 4,824.6

Total Projects Sales 2,026 3,582 4,450 3,714 1,816 915 345 305 17,152.2 Porto Saeed (Not Included in Valuation) - 971 743 578 342 123 - - 2,757.6

Total Sales 2,026 4,552 5,193 4,293 2,158 1,038 345 305 19,909.9

Projected Advances (Cumulative Percentage) 2016 2017 2018 2019 2020 2021 2022 2023 2024 Porto Cairo 95.8% 96.5% 98.3% 99.1% 100.0% - - - -

Porto New Cairo 66.9% 79.4% 88.3% 94.8% 98.9% 100.0% - - -

Porto October 28.3% 40.9% 54.0% 67.4% 78.9% 88.1% 94.6% 98.3% 100.0%

Porto Pyramids 0.8% 8.4% 24.9% 45.4% 65.4% 79.5% 91.1% 98.1% 100.0%

Porto Heliopolis 0.6% 8.8% 26.9% 51.4% 73.5% 87.7% 96.9% 100.0% -

Porto Lagoons 5.7% 14.9% 31.1% 48.9% 67.9% 82.5% 92.7% 98.2% 100.0%

Porto Sokhna Islands 23.3% 47.7% 77.0% 91.6% 100.0% - - - -

Porto Matrouh 1.1% 7.6% 25.4% 52.1% 79.5% 95.4% 100.0% - -

Porto Dead Sea 1.4% 6.8% 20.0% 40.4% 62.1% 81.0% 92.2% 98.1% 100.0%

Porto Saeed (Not Included in Valuation) - 3.5% 16.8% 37.5% 63.7% 82.2% 93.6% 98.7% 100.0%

10


AUGUST, 2016

SOURCE: PRIME


1- Porto Cairo

The project comprises of 3 main components; residential, commercial and a healthcare devoted portion. The

whole project sales are estimated at EGP 1.31bn out of which EGP 0.12bn remains yet unsold; while we see the

project total development costs around EGP 1.03bn. The project is extended over:

a- Porto Cairo Villas: The residential component only contained villas, which was fully sold out by the end of

2015. We believe the villas component final deliveries will take place over 2016 and early 2017 with EGP

42mn remaining to be recognized.

b- Porto Cairo Mall: Approximately 93.6% of the project BUA was sold up to 1Q2016, we believe the remaining

BUA to be sold in 2016.

c- Porto Cairo Clinics: A 2 Buildings project, the first was sold as clinics, generating c. EGP 90mn of sales from

2012 to 2015. The 2nd building is still under consideration whether to be sold as a hospital or separate

clinics. We pushed the building sale forward a little to 2018, and assumed the building to be sold as a 1

piece hospital until further clarity over the matter.

Porto Cairo Villas Commercial Clinics Aggregate Land Area 90,634 37,807 8,841 137,282 BUA Area 39,555.00 37,688 7,467 84,710

Residential BUA 39,555 - - 39,555 Commercial BUA - 31,520 6,168 37,688

Services BUA - 5,178 2,289 7,467

Total Project Sales EGP 1.31bn

Total Development Costs EGP 1.03bn

Porto Cairo 2016 2017 2018 Aggregate Sales Remaining - EGP mn 77.4 0.0 44.6 122.1

BUA Remaining 2,724.4 0.0 2,289.0 5,013.4

Revenues Recognition - EGP mn 127.6 24.1 44.6 196.3 Costs Recognition - EGP mn 100.5 20.1 39.7 160.3

Project Value EGP 201.3mn

11


AUGUST, 2016


SOURCE: PRIME

2- Porto New Cairo

A huge project at the heart of East Cairo that is planned to be a self sufficient gated community, featuring both

residential (Apartments) and commercial components along with plans to establish a 45 keys hotel and other

facilities including a garage. Up to 2015 end a total of EGP 1.8bn of sales took place with no recognized revenues

from the whole projects, which leave us with around EGP 0.67bn of sales estimated to take place from 2016 to

2018, and a total of EGP 2.47bn of revenues to be recognized from 2016 to 2021. The project total development

cost is estimated at around EGP 1.0bn. The project land was supplied by KUWAIDCO in return for a 25% revenue

share, leaving an average margin north of 35%.

We valued Porto New Cairo sellable residential and commercial BUA at EGP 69.8mn, while we valued the

company`s dedicated land for the establishment of the recurring revenue stream properties at EGP 57.4mn after

deducting KUWAIDCO share. Such properties are believed to be managed by Amer group.

We believe the remaining 13.6% of residential BUA to be sold over 2016 and 2017; the reason for extending

sales to 2017 our belief that East Cairo residential market is currently over crowded with supply at relatively high

pricing levels. We also estimate the remaining 30.4% of the New Cairo Mall BUA to be from 2016 to 2018, being

relatively the highest priced commercial space in East Cairo.

Porto New Cairo Residential BUA Commercial BUA Services BUA Aggregate Area

Land Area - -

54,549 BUA Area 88,513 42,723 76,455 207,691



Porto New Cairo 2016 2017 2018 2019 2020 2021 Aggregate Sales Remaining - EGP mn 224.77 295.14 132.85 -

652.8

BUA Remaining 7,812.82 13,631.24 3,571.75 -

25,016

Revenues Recognition - EGP mn 654.12 964.06 198.96 224.77 295.14 132.85 2,469.9

Costs Recognition - EGP mn 192.93 461.48 68.52 75.59 109.60 39.18 947.3


NAV EGP 57.44mn

SoTP EGP 127.20mn

12


AUGUST, 2016


SOURCE: PRIME

3- Porto October

The largest and most valuable project in Porto Group`s portfolio, planned over 1.38mn Sqm of land area over

which 0.69mn Sqm will represent the BUA divided between residential, commercial, hospitality and educational

components. The project`s land was supplied by KUWAIDCO in a co-development agreement in return for 25% of

the project`s revenues. We estimated the project total sales value at EGP 8.8bn; mainly as we believe 2016 and

2017 Egypt projected residential market performance will be weaker in terms of purchasers` ability. Hence, we

matched our assumptions to such belief. We extended Porto October residential component sales up to 2019,

over such period we assume 44.3% of the dedicated BUA to be sold, after a cumulative percentage of 55.7% sold

from 2013 to 2015 year end. We see commercial sales also slowing down, driven from the high supply of all

types of commercial units in West Cairo, so we extended the remaining 76.9% of BUA post 2015 sales, over the

period from 2016 to 2023.

We valued the residential and commercial components at EGP 505.7mn, and valued the allocated land area for

the 5-stars hotel, hospital, school, club and garage at EGP 89.2mn. We choose not to value such properties on a

DCF methodology as we are not sure yet the business model to be followed, whether leasing will be an option,

direct sales or property management by Amer. The EGP 89.2mn is the most probable scenario in our view after

considering KUWAIDCO share, in case Porto Group is to resell the land, assumed to take place by 2018.

Porto October Residential BUA Commercial BUA Services BUA Aggregate Area Land Area - -

1,381,000

BUA Area 395,435 129,717 166,887 692,039

Total Project Sales EGP 8.8bn Total Development Costs EGP 3.5bn

Porto October 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Aggregate

Sales - EGP mn 934 649 1,134 1,242 488 419 345 305 - - 5,517

BUA 64,504 39,41

8 59,00

1 64,24

4 15,56

6 12,97

2 10,37

7 8,89

5 - -

274,976

Revenues - EGP mn 751 1,557 1,250 649 1,134 1,242 488 419 345 305 8,140

Costs Recognition - EGP mn

359 678 514 270 431 483 133 115 94 83 3,159


NAV EGP 89.2mn

SoTP EGP 594.9mn

13


AUGUST, 2016


SOURCE: PRIME

SOURCE: PRIME


4- Porto Pyramids The company most recent launch that took place in 1Q2016, to record contracted sales of EGP 26.8mn for 14 units at an average area of 180 Sqm per unit. The project is planned over 101.9k Sqm over which a total BUA of 175.5k Sqm will be developed, mostly residential in addition to a planned 5-stars hotel and a sports club beside a garage available to the commercial area. We project the total project sales at EGP 1.59bn with costs estimated at EGP 0.73bn. The project is developed in cooperation with a third party contributing the land area in return for 19% of contracted sales leaving around EGP 1.29bn of sales for Porto Group, according to our estimates.

We see sales smoothing beyond 2017 and extended it to 2021; however, we believe the development will be relatively less priced in comparison with Porto New Cairo and Porto October. We expect deliveries and recognition to start by 2018.

Porto Pyramids Residential BUA Commercial BUA Services BUA Aggregate Area Land Area - -

101,980

BUA Area 117,459 9,850 48,195 175,504



Porto Pyramids 2016 2017 2018 2019 2020 2021 2022 2023 Aggregate Sales Remaining - EGP mn 124.91 472.21 286.83 331.82 273.06 100.35 - - 1,589

BUA Remaining 11,746 38,521 20,902 24,426 23,492 8,222 - - 127,309

Revenues Recognition - EGP mn - - 125 472 287 332 273 100 1,589

Costs Recognition - EGP mn - - 63 213 120 142 138 51 727


NAV EGP 6.9mn

SoTP EGP 134.9mn

5- Porto Heliopolis

The group`s anticipated launch for 2016, probably taking place in 4Q2016; to raise the Porto flags in Heliopolis district, to an extent away from the deadly competition over the East and West. The project will be mostly apartment buildings, planned over 27k Sqm, over which 132.6k Sqm will represent the residential BUA, 23.2k Sqm for the commercial developments and other Service BUA of 20k Sqm including Hospital and other offices. The project`s land was provided by Amer Group co. in return for 40% revenue share.

We believe Porto Heliopolis will be more than welcomed from a large tranche of Cairo`s residents who are not looking to shift to the outskirts while searching for the amenities provided by today`s modern gated live communities. We see 2016 residential sales at 10% of the BUA, and then set a pyramid shaped scheme. Concerning the project pricing, we launch sales at approximately EGP 10k/Sqm and do not exceed EGP 11.5k/Sqm over the sales duration. As the project is mainly apartment buildings, in one of Egypt`s over crowded districts; however, we see an upgrade potential for the pricing scheme if the company was actually able to set higher prices.

Porto Heliopolis Residential BUA Commercial BUA Services BUA Aggregate Area Land Area - -

26,957

BUA Area 132,560 23,187 20,083 175,830


Porto Heliopolis 2016 2017 2018 2019 2020 2021 2022 Aggregate Sales Remaining - EGP mn 131 502 601 705 225 - - 2,165

BUA Remaining 13,256 34,241 40,869 47,497 19,884 0 0 155,747

Revenues Recognition - EGP mn - - 352 524 625 438 225 2,165

Costs Recognition - EGP mn - - 113 195 240 228 117 893


NAV EGP 36.3mn

SoTP EGP 209.2mn

14


AUGUST, 2016


SOURCE: PRIME

SOURCE: PRIME


6- Porto Lagoons

Porto Lagoons is the company`s secondary home project in the North coast, spread over a land area of 139k Sqm

provided by Amer Group in return of 20% of the project contracted sales. The project is planned over 138k Sqm

of BUA, mostly residential with only 1.6k Sqm representing the commercial component. Launch took place in

2015, with EGP 175.1mn of sales recorded to date, while deliveries are planned to start by 2017. We set the

project`s payment time line over 4 years, and set deliveries at 2-3 years from sales. We estimate the project total

sales at EGP 1.34bn, while costs at EGP 0.82bn.

Porto Lagoons Residential BUA Commercial BUA Services BUA Aggregate Area Land Area - -

139,000

BUA Area 136,372 1,628 0 138,000


Porto Lagoons 2016 2017 2018 2019 2020 2021 2022 2023 Aggregate Sales Remaining - EGP mn 123 337 254 218 169 79 0 0 1,181

BUA Remaining 13,637 34,663 25,117 20,944 16,365 7,432 0 0 118,158

Revenues Recognition - EGP mn - 160 123 337 254 218 169 79 1,092

Costs Recognition - EGP mn - 100 77 206 154 132 106 50 669


NAV -

SoTP EGP 46.14mn

7- Porto Sokhna islands A secondary home project, complementary to Porto Sokhna, constructed over a land area of 152k Sqm, and a BUA of 65.8k Sqm. The project has no commercial or other services allocated area, as an incentive to Porto Sokhna commercial operations, while saving extra development costs. The project`s land is one of Amer Group`s properties in return for a 20% share. We estimate the project`s total sales at EGP 0.71bn out of which EGP 0.35bn remains unrealized. We set the project`s costs equivalent to EGP 0.42bn, considering the rough nature of lands in such location, requiring higher infrastructure and construction costs. The project is also planned to include a 50 beds hospital, in process over an 8k Sqm land area with a total BUA of 6.2k Sqm which we valued at EGP 16.1mn. The hospital construction would add a strong upside potential to Porto Sokhna islands valuation, as the project`s location is known for its scarce medical care destinations, especially if Porto Group decided on retaining the property to be operated by Amer Group instead of selling it.

Porto Sokhna islands Residential BUA Commercial BUA Services BUA Aggregate Area Land Area - -

152,000

BUA Area 65,830 0 0 65,830


Porto Sokhna islands 2016 2017 2018 2019 2020 Aggregate Sales Remaining - EGP mn 147 197 - - - 345

BUA Remaining 13,166 16,762 0 0 0 29,928

Revenues Recognition - EGP mn - 16 345 147 197 706

Costs Recognition - EGP mn - 10 204 87 117 418


NAV EGP 16.1mn

SoTP EGP 106.8mn

15


AUGUST, 2016

SOURCE: PRIME


8- Porto Matrouh The project is considered Porto’s one step forward ahead of Egypt`s real estate developers, being the first sophisticated developer to apply the secondary home concept in Marsa Matrouh. The city is currently getting more attention as the government keeps on extending better infrastructure. We estimate the project total sales to come north to EGP 0.76bn, with almost 1% of which being already sold up to 1Q2016. The project is the 4

th

collaboration with Amer Group, contributing the land area for 20% of the project collected sales value. We estimate development cost to reach EGP 0.42bn, which stills leaves a healthy margin after considering Amer group`s share. We set the project`s delivery at 2-years, with minimal deliveries taking place in 2017 and speeding up from 2018, we also set the project`s average payment schedule at 4-years; and remain conservative in pricing the project until the group proves its pricing power over Matrouh. The sellable residential component represents 6.5% of BUA, while the remainder will mainly be operated on a time-share basis. The project also contains around 6.2k Sqm of commercial area, believed to include the group`s featured cuisines and shopping experience.

Porto Matrouh Residential BUA Commercial BUA Services BUA Aggregate Area Land Area - -

133,000

BUA Area 77,835 6,165 0 84,000



Porto Matrouh 2016 2017 2018 2019 2020 2021 Aggregate Sales Remaining - EGP mn 59 291 290 116 0 0 756

BUA Remaining 7,784 33,292 30,325 11,914 0 0 83,314

Revenues Recognition - EGP mn 0 7 59 291 290 116 763

Costs Recognition - EGP mn 0 4 36 161 155 64 420

Project Value EGP 20.9mn NAV 0.0 SoTP EGP 20.9mn

16


AUGUST, 2016

SOURCE: PRIME


9- Porto Dead Sea The group`s most successful regional journey to date, the second most value additive project following Porto October. The project is planned over 805k Sqm, provided by the Jordanian development company in return for JOD 21mn equivalent to EGP 260mn according to our estimation, mainly on the back of the planned payment scheme and the estimated EGP status versus the JOD. The land liability is payable over 4 years, with the remaining portion paid as a one shoot in the fifth year; the project`s land ownership will be transferred to Porto Group then. the project is planned over a BUA of 250k Sqm subject to increase, as the project is an all apartments project on Jordan Eastern shore. Currently Porto Group is developing approximately 250k Sqm of the project`s land as a first stage, the company will receive the remaining area once the first stage is developed as a sort of development guarantee from the authority there. The land was subject to several conflicts; however, Porto Group is not part of such conflicts and was promised by the Jordanian government that the project will progress as planned with no risks seen over the horizon. The project total estimated sales is close to EGP 5bn, with development costs expected to reach EGP 2.7bn, due to the rocky nature of the land provided which requires heavy infrastructure installation costs; yet the project offers an average margin of 44.5% over the recognition period. Out of the total project estimated sales, EGP 117.5mn were recorded in 2015, with no sales recorded in 1Q2016. We set deliveries according to the company`s guidance, to start by 2017, with the commercial component deliveries to start by 2019. The project is planned to include a 5-stars hotel, entrainment allocated BUA mainly for a Cinema and water park establishment in addition to Porto`s featured restaurants chain owned by Amer in addition to third parties as well.

Porto Dead Sea Residential BUA Commercial BUA Services BUA Aggregate Area Land Area - -

805,774

BUA Area 183,306 24,673 42,021 250,000


Porto Dead Sea 2016 2017 2018 2019 2020 2021 2022 2023 Aggregate Sales Remaining - EGP mn 203 838 1,707 1,101 660 316 0 0 4,825

BUA Remaining 9,165 35,720 72,381 44,886 27,496 12,922 0 0 202,570

Revenues Recognition - EGP mn - 118 203 838 1,707 1,101 660 316 4,942

Costs Recognition - EGP mn - 67 115 443 935 589 375 180 2,702


NAV EGP 91.3mn

SoTP EGP 305.0mn

17


AUGUST, 2016


SOURCE: PRIME

SOURCE: PRIME

10- Porto Saeed (not included in valuation) The group`s entry to Port Saeed, a promising value additive project not included in our valuation yet. Once launch take place we will instantly revise our preliminary estimates, as we believe the project is still missing some details on the final master plan, in addition to the pricing level suitable to Port Saeed known for a relatively well-being citizens. The project is planned over a total land area of 428.8k Sqm contributed by a third party in return of 15.5% of the project`s contracted sales. The project`s preliminary announced BUA stands at 328.5k Sqm, of which c. 70% represents primary housing area. The project is also planned to feature a hotel, club and school once the group receives the required licenses.

The project was preliminary set for launch by 2016 year end; however, we anticipate such launch to show up in 1H2017. We estimate the project`s payment schedule over 4 years with deliveries to start taking place by 2019. We subjectively estimate the project`s total sales at EGP 2.76bn contracted from 2017 to 2021, and development costs at EGP 1.1bn.

Porto Saeed Residential BUA Commercial BUA Services BUA Aggregate Area Land Area - -

428,777

BUA Area 229,834 36,003 62,649 328,486


Porto Saeed 2016 2017 2018 2019 2020 2021 2022 2023 Aggregate Sales Remaining - EGP mn - 971 743 578 342 123 - - 2,758

BUA Remaining - 103,935 69,460 46,476 34,475 11,492 - - 265,837

Revenues Recognition - EGP mn - - - 971 743 578 342 123 2,758

Costs Recognition - EGP mn - - - 393 284 204 161 58 1,100


NAV -

SoTP EGP 250.0mn

11- Porto Agadir & Tartous (not included in valuation) Porto Agadir is the 2nd largest land area in the group`s portfolio, Porto Group will have be the sole owner of such land area after receiving the go-ahead approvals and licenses. Porto group already paid a 5% down payment, and will pay 15% once the license is received and the remaining 80% over 4 installments.

Porto Agadir Residential BUA Commercial BUA Services BUA Aggregate Area Land Area - -

1,200,000

BUA Area 130,380 12,940 179,720 323,040

We did not include both projects in Tartous and Agadir, as both projects destiny remains uncertain; however, we see potential that Porto Agadir will get its license in the short term, as the process is currently under usual inspection from the Morocco government.

18


AUGUST, 2016

Stock Recommendation Guidelines

Recommendation Target-to-Market Price (x)

Buy x > 15%

Accumulate 5%< x <15%

Hold -5% < x < 5%

Reduce -15% < x < -5%

Sell x < -15%

Strong Buy x > 40%

Investment Grade Explanation

Growth 3 Yr. Earnings CAGR > 20%

Value Equity Positioned Within Maturity Stage of Cycle

Speculative Quality Earnings Reflect Above Normal Risk Factor

19


AUGUST, 2016

PRIME SECURITIES

Hassan Samir Managing Director +202 3300 5611 [email protected]

RESEARCH TEAM

Aboubakr Emam, CFA Manager +202 3300 5724 [email protected]

Eman Negm, MSc Economist +202 3300 5716 [email protected]

Mohamed Marei Equity Analyst +202 3300 5725 [email protected]

Ali Afifi Equity Analyst +202 3300 5723 [email protected]

Omneya El Hammamy Equity Analyst +202 3300 5718 [email protected]

Ingy Fahmy Equity Analyst +202 3300 5722 [email protected]

Mohamed Magdi Junior Equity Analyst +202 3300 5720 [email protected]

SALES TEAM

Mohamed Ezzat Head of Sales & Branches +202 3300 5784 [email protected]

Shawkat Raslan Heliopolis Branch Manager +202 3300 5110 [email protected]

Amr Saber Team Head – Institutions Desk +202 3300 5659 [email protected]

Amr Alaa, CFTe Manager +202 3300 5609 [email protected]

Mohamed Elmetwaly Manager +202 3300 5610 [email protected]

Emad Elsafoury Manager +202 3300 5624 [email protected]

HEAD OFFICE

PRIME SECURITIES S.A.E.

Regulated by CMA license no. 179

Members of the Cairo Stock Exchange

2 Wadi El Nil St., Liberty Tower,

7th-8th Floor, Mohandessin, Giza, Egypt

Tel: +202 33005700/770/650/649

Fax: +202 3760 7543 Disclaimer

Information included in this report has no regard to specific investment objectives, financial situation, advices or particular needs of the report users.

The report is published for information purposes only and is not to be construed as a solicitation or an offer to buy or sell any securities or related

financial instruments. Unless specifically stated otherwise, all price information is only considered as indicator.

No express or implied representation or guarantee is provided with respect to completeness, accuracy or reliability of information included in this

report.

Past performance is not necessarily an indication of future results. Fluctuation of foreign currency rates of exchange may adversely affect the value,

price or income of any products mentioned in this report.

Information included in this report should not be regarded by report users as a substitute for the exercise of their own due diligence and analysis

based on own assessment and judgment criteria. Any opinions given are subject to change without notice and may significantly differ or be contrary

to opinions expressed by other Prime business areas as a result of using different assumptions and criteria. Prime Group is under no obligation

responsible to update or keep current the information contained herein.

Prime Group, its directors, officers, employees or clients may have or have had interests or long or short positions in the securities and/or currencies

referred to herein, and may at any time make purchases and/or sales in them as principal or agent.

Prime Group, its related entities, directors, employees and agents accepts no liability whatsoever for any loss or damage of any kind arising from the

use of all or part of these information included in this report. Certain laws and regulations impose liabilities which cannot be disclaimed. This

disclaimer shall, in no way, constitute a waiver or limitation of any rights a person may have under such laws and/or regulations.

Furthermore, Prime Group or any of the group companies may have or have had a relationship with or may provide or have provided other services,

within its objectives to the relevant companies.

Copyright 2016 Prime Group all rights reserved. You are hereby notified that distribution and copying of this document is strictly prohibited without

the prior approval of Prime Group.

mailto:[email protected]







porto group - initiation of coverage - august 2016

Documents